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News : Local Last Updated: Mar 25th, 2013 - 08:25:02


Extricated from debt
By Marston Gordon
Mar 25, 2013, 08:11

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It took two years between default number one, Jamaica Debt Exchange (JDX) and number two, National Debt Exchange (NDX). How long will it take for number three?

Superstitions abound about the number 3 and range from that of the ancient Babylonians and Celtics who interpreted it to represent creation, to the belief that anything tried a third time will succeed.

ISO 4217 includes currency codes with XXX denoting no currency. So will exchange number three, Extricate Debt Exchange (XDX) result in XXX? In the most optimistic scenario XDX might successfully recreate the Jamaican economy but it could just as well decimate the Jamaican dollar (JMD). We have been at this devaluation thing since 1973, eleven years after gaining independence (1962) and four years after decimalization (1969). Up to that time the Jamaican dollar was stronger that its US counterpart, but that changed on January 13, 1978 with the official rate at 1.05 to the USD, and we have not looked back since.

Redenomination
Zimbabwe took 26 years from its independence in 1980 to redenominate its currency, so in a sense we are doing well.  But the time is coming when we too will have to do the same, because our country has been too import dependent which brought us to the point of seeking balance of payment support in the form of loans.  Rather than buying time to grow the economy, loans and grants were used to subsidize our living standard to the point where interest payment consumed 65% of tax revenues or 17% of gross domestic products (GDP) in fiscal 2009/10.

Time for a haircut
The Jamaican debt dynamics is overgrown and unsustainable with gross public debt at 129% of GDP (2009/10) there is no chance that creditors will ever be paid in full. The International Monetary Fund (IMF) is not an independent third party, they are here for one and one purpose only, and it is to protect the interest of the international creditors. If they succeed in doing so the fallout in the Jamaican diseconomy will be contained as intended and the country will be relegated to economic irrelevance. Don’t ever forget that our majority is dissimilar to the Europeans, so although our economic circumstances might resemble, for the IMF there is no loss of brotherly love. No grease (Greece) for Jamaica.

It took Argentina ten years to reduce its debt to GDP ratio from 165% (2002) to 44.2% (2012). A large part in achieving this was it having defaulted on its public debt in 2001 through to rebuilding its foreign exchange reserve by 2005 and repaying the IMF in 2006. The IMF dissolution of Jamaica began in 1976 and we are worse off than before, the barber must do what the barber has to do to go forward. Argentina shaved between 65- 75% of the nominal value from the 76% of the bond it defaulted on and extended its tenor. Negotiation was later reopened with remaining 24% of bond holders who did not agree to the restructuring.                   

Law and disorder
Lawlessness and disorder does not necessarily follow if Jamaica adopts Argentina’s route and explain to the populace that it is a one-off sacrifice that will yield long term benefits. In fact, a predetermined percentage of interest saving could be directed to infrastructure development, security, education and health with immediate improvement in employment and social services. A routine complaint for non compliance by some tax payers is that they don’t see any benefit from payment of taxes; this could be the answer.

Bankruptcy and the constitution
Word on the street is that Jamaica cannot go bankrupt because repayment of debt is protected by the constitution. So if logic follows, when a country becomes insolvent the remedy is to extract more and more from tax payers in the form of higher taxes and lesser services (austerity).  We have been sacrificing and tightening our belts for 40 years during which the economy has mostly contracted creating higher unemployment, lower productivity, escalating crime and a whole sense of hopelessness.
Our problem is one of leadership, as neither the IMF nor the majority parties are capable of taking us out of this quagmire.


Source: Wikipedia


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